The red-shirted supporters of the United front for Democracy against Dictatorship (UDD) will intensify their rally ahead of the upcoming court verdict in the Shinawatra assets seizure case, Democrat leader’s personal spokesman Thepthai Senpong said.
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Significant downside risks remain should political instability resurface in Thailand and the global decline proved more protracted or steeper than now expected
Inflation has been easing with the slowdown in economic activity and the decline in oil and food prices. After peaking at 9.3 percent in July 2008, 12-month inflation fell to only 0.4 percent in December, although the average for 2009 at 5.5 percent was roughly double the level in 2007. Core inflation averaged 2.3 percent in 2008, within the central bank’s target of 0-3.5 percent. In January and February, prices declined 0.3 percent from the first two months of 2008, but this has been driven primarily by fuel prices, with other prices still increasing year-on-year. Given the increased excess capacity in the economy and the continuing decline in global oil and food prices this year, inflation in 2009 is expected to be negligible.
Export volumes are projected to contract 16 percent in 2009 after a 6 percent expansion in 2008. Exports of services, more than half of which were accounted for by tourism receipts (around 8 percent of GDP) will also be heavily impacted by the slowdown in arrivals from advanced countries (40 percent of total tourists). Accordingly, exports of services are projected to contract by 6.6 percent this year. Import volumes should contract more than exports due to businesses running down inventories and a contraction in overall investment and consumption of imports. Net foreign demand will nevertheless contribute negatively to growth since in real terms exports represent a much larger share of GDP than imports.
External debt service ratios are manageable at 5.4 percent of Thailand’s exports overall. Total external debt was under 60 percent of international reserves at the end of 2008. The Thai financial sector is basically sound and has been largely insulated from the immediate impact of the global financial crisis, but increasing pressure from the slowdown on companies will be passed to banks. The average capital adequacy ratio amounted to about 14 percent at end-2008. Net NPLs declined during 2008 to 2.9 percent of total assets. While this trend is set to reverse during 2009, banks appear to have enough room, at least in the short-term, to cope with higher NPLs. There is adequate liquidity in the domestic banking system, but banks have become more cautious given that credit quality is expected to deteriorate. Credit expanded by 9 percent in 2008, initially due to higher demand for working capital, then as a consequence of large domestic firms switching from foreign to domestic borrowing. Credit growth slowed in January, and the ratio of loan to deposit decreased to 86 from 90 percent, suggesting some room for future loan growth.
So far, the Thai government has enough capacity to finance the first economic stimulus package and the three-year public investment plan. In the face of shrinking revenues, the government estimates its budget deficit to be about 525 billion baht, or 6 percent of Thailand’s gross domestic product, in the fiscal year ending September 2009. It is also seeking loans from domestic and external sources to shore up the budget and support planned investment.
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